Should You Take Pension Payments or a Lump Sum? A How-To Guide

With buyout offers, when deciding whether to take it or leave it, a couple of calculations can be enlightening. This how-to guide walks you through the steps to help make the right choice for you.

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Your employer doesn’t want to be in the pension business. It’s too expensive. Low interest rates force employers to beef up their pension contributions or invest in riskier assets to meet their plans’ assumed rates of returns.

For this reason, employers offer lump-sum buyouts. The company wants you to take the buyout so they can exit the pension business and save money. You can take the pension lump sum and roll it tax-free into an IRA.

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Circle one item in Column A or B that identifies you.Row 0 - Cell 1
Column AColumn B
I value access to principalI value certainty of income
I want to leave something to the kidsThe kids are fine, or they are getting enough elsewhere.
I value the potential growth on the IRA, understanding losses may be incurred along the way.I am not OK with risk taking in retirement. It makes me uncomfortable to see my account balance go down.
I value the ability to take more income in good years of the stock market, knowing I should take less if the account goes down.I value guaranteed income regardless of what the stock and bond markets do.
The pension is a small amount relative to my net worth.The pension is all I have.
I have other sources of reliable income (rents, royalties, spouse’s pension)I have no or very little guaranteed income in retirement.
I generally am OK with taking risk, knowing I may get rewarded.I am as conservative investor as they come!
Disclaimer

Investment advisory and financial planning services are offered through Summit Financial LLC, an SEC Registered Investment Adviser, 4 Campus Drive, Parsippany, NJ 07054. Tel. 973-285-3600 Fax. 973-285-3666. This material is for your information and guidance and is not intended as legal or tax advice. Clients should make all decisions regarding the tax and legal implications of their investments and plans after consulting with their independent tax or legal advisers. Individual investor portfolios must be constructed based on the individual’s financial resources, investment goals, risk tolerance, investment time horizon, tax situation and other relevant factors. Past performance is not a guarantee of future results. The views and opinions expressed in this article are solely those of the author and should not be attributed to Summit Financial LLC. Links to third-party websites are provided for your convenience and informational purposes only. Summit is not responsible for the information contained on third-party websites. The Summit financial planning design team admitted attorneys and/or CPAs, who act exclusively in a non-representative capacity with respect to Summit’s clients. Neither they nor Summit provide tax or legal advice to clients. Any tax statements contained herein were not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state or local taxes.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Michael Aloi, CFP®
CFP®, Summit Financial, LLC

Michael Aloi is a CERTIFIED FINANCIAL PLANNER™ Practitioner and Accredited Wealth Management Advisor℠ with Summit Financial, LLC.  With 21 years of experience, Michael specializes in working with executives, professionals and retirees. Since he joined Summit Financial, LLC, Michael has built a process that emphasizes the integration of various facets of financial planning. Supported by a team of in-house estate and income tax specialists, Michael offers his clients coordinated solutions to scattered problems.